Patient Protection and Affordable Care Act Challenges Often Turn On Interpretation of the Court’s Commerce Clause Jurisprudence

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On September 13, 2011, the United States District Court for the Middle District of Pennsylvania issued its decision finding that the individual mandate provision of the Patient Protection and Affordable Care Act (PPACA) exceeded Congresss authority under the Commerce Clause and therefore is unconstitutional. As discussed in a recent Forbes article, this decision is merely one in a long line of District and Circuit opinions on the constitutionality of the PPACA. Ultimately, the individual mandate provision the PPACAs constitutionality will turn on the interpretation of two bedrocks of Commerce Clause precedent, Wickard v. Filburn, 317 U.S. 111 (1942) and Gonzales v. Raich, 545 U.S. 1 (2005). A copy of the Forbes article can be read here.

Generally speaking, Congresss power under the Commerce Clause extends to three broad categories. First, Congress may regulate the channels of interstate commerce. Second, Congress may regulate and protect the instrumentalities of interstate commerce. Finally, Congress may regulate activities that have a substantial effect on interstate commerce. See United States v. Lopez, 514 U.S. 549, 558 (1995). It is within this third category that Congresss Commerce Clause authority is pressed to its “outer limits” and is often the subject of judicial challenge. See Id. at 557. Such is the case with the PPACA.

In Wickard, the Supreme Court held that Congress could regulate the production of home grown wheat meant solely for personal use under its Commerce Clause power. In so holding, the Court found that although Filburns activities were entirely local, such activities, when taken in the aggregate, had a substantial effect on the national market for wheat. In the annals of Commerce Clause jurisprudence, Wickard v. Filburn represents the high-water mark for Congressional power.

More than 60 years later,    in Gonzales v. Raich, the Supreme Court upheld Congresss authority under the Commerce Clause to prohibit the possession of home-grown marijuana intended solely for personal use, even when such possession was allowed by state law. Similar to the Courts rationale in Wickard, the Raich Court found that the production of marijuana substantially affects supply and demand in the national market; therefore the regulation was “squarely within Congress commerce power.” The Court went on to hold that “Congress can regulate purely intrastate activity that is not itself Ëœcommercial . . . if it concludes that failure to regulate that class of activity would undercut the regulation of the interstate market in that commodity.” Raich, at 18. Both Raich and Wickard stand for an expansive and broad reading of Congresss power under the Commerce Clause.

In finding that the PPACAs individual mandate was unconstitutional, Judge Conner distinguished the mandate from the economic regulations at issue in Wickard and Raich. The Court found that unlike the laws at issue in Wickard  and Raich, which allowed people to not engage in regulated conduct and thereby stay beyond the reach of the statute, PPACAs mandate requires people to become active participants in the health insurance market regardless of whether heath services will be used. As explained by Judge Conner:

Congress can reach the personal production of wheat “ a clear activity affecting the interstate market “ in an effort to stabilize the wheat market. Congress cannot, however, in order to stabilize that market, force the purchase of wheat by individuals who decide to forego wheat or wheat products, even if Congress legitimately determines that an individuals decision not to purchase wheat or wheat products inhibits the governments ability to regulate or stabilize the wheat market. Similarly, Congress may lawfully regulate the interstate market for health insurance and health services, but Congress cannot require individuals who choose not to purchase health insurance or individuals who are not currently seeking or receiving services in the health care market to purchase health insurance in order to stabilize the health insurance market. Congress cannot mandate or regulate in anticipation of conduct that may or may not occur.

Bachman v. U.S. Department of Health and Human Service, et. al., at 36.

The Court went on to find that an uninsured individuals conduct has no effect on conduct Congress sought to regulate under the Commerce Clause until such time that: 1) the individual obtains health care services; and 2) the individual does not pay for the services received. The Court stated that “the mere status of being without health insurance, in and of itself, has absolutely no impact on interstate commerce . . . at least not any more so than the status of being without any particular good or service.” Id. at 38. As a result, “current Commerce Clause precedent does not permit Congress to reach a pre-transaction stage in anticipation of participation in a market. . . .”Id. at 40.

Ultimately, it is likely that the final decision as to the constitutionality of the individual mandate of the PPACA will be made by the Supreme Court. Such a decision has the potential to reshape Congresss power to regulate individuals and businesses under the Commerce Clause regardless of its outcome. Fuerst Ittleman will continue to monitor the litigation challenging the PPACA and its effects on Commerce Clause jurisprudence. For more information, please contact us at contact@fidjlaw.com.

USDA Proposes Mandatory Livestock Tracking System

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On August 9, 2011, the U.S. Department of Agricultures (USDA) Animal and Plant Health Inspection Service (APHIS) issued a proposed rule to establish a mandatory livestock tracking system in order to improve the traceability of U.S. livestock. The proposed rule would require farmers and ranchers to affix unique identification numbers to animals transported interstate. The rule seeks to establish an effective, transparent animal disease traceability system without additional burden on farmers and ranchers. The tracking system would allow federal officials to quickly isolate diseased animals in the event of an outbreak.

In 2004, the USDA began developing a framework for animal disease traceability through the implementation of the National Animal Identification System (NAIS). NAIS is a voluntary registration system established to trace the source of an animal disease within 48 hours. However, in 2009, the USDA estimated that only 36 percent of farmers and ranchers participated in the NAIS. In order to improve traceability, APHIS launched a series of efforts to assess the acceptance of an animal disease traceability system which lead to the development of the proposed rule.   

The proposed rule requires that livestock moved interstate be officially identified and accompanied by an interstate certificate of veterinary inspection or other documentation, such as owner-shipper statements or brand certificates, unless exempt. Official forms of identification include tattoos, metal eartags, or brands with certain exceptions. The proposed rule also allows for States and tribes to develop alternative forms of identification. Livestock subject to the identification requirements include cattle, bison, sheep, goats, swine, horses, captive cervids, and poultry.

The USDA is confident that the new system will be able to trace the source of an animal disease within a few days of an outbreak. Advocates say the implementation of the new mandatory system would be a significant improvement compared to USDA bovine tuberculosis investigations averaging 150-days to trace the source of an outbreak.  

The USDA is currently seeking public comment on the proposed rule for a mandatory livestock tracking system. The deadline for submission is November 9, 2011. Fuerst Ittleman will continue to monitor the development of the USDA APHISs new proposed rule. For more information, please contact us at contact@fidjlaw.com.

Johnson & Johnson Seeks Settlement in for Allegations of Off-Label Promotion of Risperdal

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In 2004, the U.S. Department of Justice (DOJ) Office of the Inspector General (OIG) began investigating Janssen Pharmaceutica Inc. (Janssen), a subsidiary of Johnson & Johnson (J&J), concerning the marketing practices for Risperdal, an antipsychotic prescription drug. Janssen allegedly promoted Risperdal for unapproved off-label uses, a misdemeanor criminal offense. Pursuant to the Federal Food, Drug, and Cosmetic Act (FD&C Act) manufacturers are prohibited from directly marketing a drug for a use other than the U.S. Food and Drug Administration (FDA) approved indication. 21 U.S.C. §§301-97. The FDA approved Risperdal for the treatment of schizophrenia in adults and adolescents. Allegations suggest that Janssen also promoted Risperdal for the treatment of dementia and anxiety disorders. See our previous report here for more information regarding misdemeanor criminal charges resulting from off-label promotion.

On August, 9, 2011, in a quarterly report filed with the Securities and Exchange Commission (SEC), J&J announced efforts to resolve the criminal penalties related to Risperdal marketing. J&J stated that an agreement had been reached with the DOJ regarding the key issues; however, the settlement has yet to be finalized. J&J adjusted its financial statements for the second quarter of 2011 to reflect the financial component of the proposed criminal settlement. 

In addition, J&J announced the settlement of a tolling agreement with approximately 40 states. The tolling agreement allows for the delay of the statute of limitations in order to provide J&J an opportunity negotiate civil claims with states before a state is forced to file a complaint to preserve their rights. J&J states litigation is likely if negotiated resolutions cannot be reached in regards to the civil litigation relating to the allegations of off-label promotion of Risperdal. Pursuant to the False Claims Act, companies who knowingly represent a false approval are subject to civil penalties. 31 U.S.C. § 3729. 

J&J claims that the resolution of the criminal and civil matters is not expected to have a material adverse effect on the Companys financial position, although the resolution in any reporting period could have a material impact on the Companys results of operations and cash flows for that period.

For more information regarding the drug approval process or for any questions regarding how your company can maintain regulatory compliance, please contact us at contact@fidjlaw.com.

FDA Issues Guidance Clarifying When Changes or Modifications to an Existing 510(k) Require New PMA Submission

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On July 26, 2011, the U.S. Food and Drug Administration (FDA) issued draft guidance that clarifies when changes or modifications to a previously cleared 510(k) device necessitate a new premarket submission. In order to introduce a medical device into the interstate market, the FDA must either approve a premarket application (PMA) or clear a 510(k) premarket notification. Lower-risk devices are often submitted through the 510(k) premarket notification process, whereby the FDA “clears” the device for sale if it is found to be substantially equivalent to a previously cleared predicate device. The FDA announced that an additional 510(k) notification is required in instances where a change or modification to a cleared device would “significantly affect the products safety or effectiveness” or “constitute a major change to the intended use of the device.”

The new draft guidance outlines when an additional 510(k) notification is required for compliance with FDA regulations. The guidance suggests that manufacturers should compare the modified device to the most recently cleared version of the device to determine whether the modification could significantly affect its safety or effectiveness. In addition, manufacturers should assess individual changes to a device to determine whether, if at all, any of those changes constitutes a major change to the products safety, effectiveness, or intended use. A manufacturer should clearly document whether it believes the change does or does not require submission of an additional 510(k) notification, as well as the reason for that decision.

Furthermore, the FDA provides specific guidance to help manufacturers determine whether to submit an additional 510(k) notification for changes or modifications to the manufacturing process, product labeling, technology or engineering, or material type. This guidance also instructs manufacturers to weigh whether bench testing or simulations are sufficient to assess the safety or effectiveness of a modified device. Absent clear evidence of safety or effectiveness from these types of testing, the FDA suggests that manufacturers conduct clinical data using human subjects to validate the safety of these products.

This guidance document is part of the FDAs Plan of Action for Implementation of 510(k) and Science Recommendations, a series of action items launched earlier this year intended to “enhance predictability, consistency, and transparency of the FDAs premarket review programs.” For more information about the FDAs Plan of Action, see our previous post here.

Fuerst Ittleman is well-equipped to assist members of FDA-regulated industry navigate the laws and regulations applicable to medical devices. For more information about the current regulatory framework surrounding medical devices, please contact us at contact@fidjlaw.com.

Whistleblowers Claim Dialysis Company Deliberately Wasted Hundreds of Millions of Dollars in Medicine to Collect Medicare Overpayment

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Earlier this week, a pair of whistleblowers filed an amended complaint in United States District Court in Atlanta alleging that DaVita, a kidney dialysis clinic, intentionally wasted medicine to collect Medicare drug overpayments. The plaintiffs claim that DaVita changed how it dispensed dialysis medication in order to inflate their Medicare reimbursement return. The original complaint, which was filed in October of 2007, was unsealed this past week. After two years of investigating the claim, the federal government decided in April that it did not intend to join the lawsuit.

DaVita, the second largest independent provider of dialysis services for patients with chronic kidney failure, is responsible for treating nearly one-third of the nations dialysis patients. The complaint against DaVita alleges that the company designed multiple sets of conflicting internal protocols and “dosing grids” that dictated how each drug should be administered to patients, based on the cost of the drug and Medicare reimbursement. Prior to January 2011, Medicare paid dialysis centers separately for dialysis procedures and medication. Dialysis centers often made a profit from these Medicare reimbursements because Medicare reimbursed more than the centers paid for the medicine. Earlier this year, however, Medicare changed its payment plan in an attempt to curb overuse of dialysis drugs. In January, Medicare transitioned to a bundled-payment system, where payments are fixed per treatment and include the cost of drugs. Under this system, Medicare reimburses dialysis centers for the total amount of medicine contained in the vial, not the amount of medicine administered to the patient

In response to this new reimbursement system, DaVita adjusted the way it ordered and administered medication. Under the old system, for example, DaVitas dialysis treatment consisted of a six-microgram dose, which was administered in three vials of two-micrograms each. After Medicare shifted to the bundled-payment system, DaVita used the same six-microgram therapy program but administered the therapy from a single 10-microgram vial instead. According to the whistleblowers, the excess four-micrograms were not used in therapy and were simply wasted. The dialysis treatment remained the same, except DaVita charged Medicare for four extra micrograms of medication it did not actually administer to patients. A similar sequence of events was reported for DaVitas administration of Venofer, where approximately 75 milligrams of medication was wasted each therapy session. These examples are contrasted with DaVitas use of Epogen, an anemia drug that is paid for based on the amount actually used, not the amount per vial. The lawsuit alleges that DaVita did not waste any Epogen medication. The allegations against DaVita have been supported by other physicians and nurses working in dialysis clinics around the nation.

DaVita denies that it overused pharmaceuticals in return for financial incentives. A representative of DaVita claims that the changes in its administration of dialysis therapy have been dictated by physicians, not DaVitas own drug protocol.

Fuerst Ittleman will continue to monitor the progress of this whistleblower lawsuit For additional information, please contact us at contact@fidjlaw.com.

Robert Becerra Presentation to National Assocation of Purchasing Management

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On June 30, 2011, Fuerst Ittleman lawyer Robert Becerra gave a presentation on “Criminal Prosecution in the International Trade Arena: Conducting Business While Staying Out of Jail” to the National Association of Purchasing Management, South Florida Chapter and the Association of Operations Management. The presentation was featured at the National Association of Purchasing Managements installation dinner for its officers for the 2011-2012 year. Robert Becerra concentrates his practice on white collar criminal defense, grand jury investigations, regulatory proceedings, civil forfeitures, corporate compliance and internal investigations, among other areas. He is “AV” rated by the Martindale Hubbell Law Directory, rated a “Top Lawyer” by the South Florida Legal Guide, and as “Superb” by the lawyer rating website www.Avvo.com.

HCC Insurance Holdings, Inc. Reaches Settlement With OFAC Over Alleged Violations of Iranian Transactions Regulations.

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On April 26, 2011, the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury announced that it had reached a settlement with HCC Insurance Holdings, Inc. (“HCC”) over alleged violations of the Iranian Transactions Regulations (“ITR”). The ITR, which are found at 31 C.F.R. part 560, were promulgated pursuant to the International Emergency Economic Powers Act and are administered by OFAC. General information regarding economic sanctions against Iran can be found at OFACs website here.

The settlement agreement and alleged violations of the IRT highlight the breadth and complexity of the sanctions on trade with Iran. OFAC alleged that HCC, a wholly-owned insurance subsidiary of Houston Casualty Company, violated 31 C.F.R. §§ 560.206 and 560.208 of the IRT by participating in the hull portion of a hull and liability aviation insurance policy that covered commercial flights operating in Iran from April 2005 to April 2006. 31 C.F.R. § 560.206 prohibits U.S. persons from “financing, facilitating, or guaranteeing” goods, technology or services to Iran. Additionally, 31 C.F.R. § 560.208 prohibits U.S. persons from approving, financing, facilitating, or guaranteeing any transaction by a foreign person where the transaction performed would be prohibited under the IRT if performed by a U.S. person.

More specifically, OFAC alleged the violations occurred when: 1) a foreign insurance broker insured a foreign-owned commercial airline with a hull and liability policy of which HCC was a part; 2) the foreign-owned commercial airliner then leased aircraft covered by this policy to an air charter company that operated in Iran. As a result of this arraignment, HCC received $113,921 in premiums. HCC voluntarily disclosed the violation and OFAC announced that HCC paid $38,448 in penalties for its violations. According to OFAC enforcement guidelines, the base penalty associated with such a violation is $56,960. However, this penalty was lowered because HCC cooperated with OFAC in its investigation and it had not been subject to prior OFAC penalties or administrative actions. A copy of OFACs announcement can be read here.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Supreme Court limits the Confrontation Clause of the Sixth Amendment in Michigan v. Bryant

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On February 28, 2011, in Michigan v. Byrant, Justice Sotomayor writing for the United States Supreme Court held that a victims identification and description of the defendant and the location of the alleged crime were not testimonial statements because they had a “primary purpose . . . to enable police assistance to meet an on-going emergency.” Citing Davis v. Washington, 547 U. S., at 822. Therefore, the use of the identification at the Defendants trial did not violate the Confrontation Clause.

To make the “primary purpose” determination, the a criminal court must objectively evaluate the circumstances in which the out-of-court statement was given to the police and the parties statements and actions. The primary purpose inquiry is an objective analysis. The existence of an “ongoing emergency” at the time of the encounter is among the most important circumstances informing the interrogations “primary purpose.”

However Justice Scalia wrote a blistering dissent rejecting the majority’s opinion. The highlights of the dissent include the following passages:

Todays tale”a story of five officers conducting successive examinations of a dying man with the primary purpose, not of obtaining and preserving his testimony regarding his killer, but of protecting him, them, and others from a murderer somewhere on the loose”is so transparently false that professing to believe it demeans this institution. But reaching a patently incorrect conclusion on the facts is a relatively benign judicial mischief; it affects, after all, only the case at hand. In its vain attempt to make the incredible plausible, however”or perhaps as an intended second goal”todays opinion distorts our Confrontation Clause jurisprudence and leaves it in a shambles. Instead of clarifying the law, the Court makes itself the obfuscator of last resort.

The only virtue of the Courts approach (if it can be misnamed a virtue) is that it leaves judges free to reach the “fairest” result under the totality of the circumstances. If the dastardly police trick a declarant into giving an incriminating statement against a sympathetic defendant, a court can focus on the polices intent and declare the statement testimonial. If the defendant “deserves” to go to jail, then a court can focus on whatever perspective is necessary to declare damning hearsay nontestimonial. And when all else fails, a court can mix-and-match perspectives to reach its desired outcome. Unfortunately, under this malleable approach “the guarantee of confrontation is no guarantee at all.”

The full opinion can be found here: https://www.supremecourt.gov/opinions/10pdf/09-150.pdf

The attorneys at Fuerst Ittleman have extensive experience handling white collar criminal cases at both the trial and the appellate level. You can reach an attorney by emailing us at contact@fidjlaw.com.

Final FASB Guidance on Troubled Debt Restructurings Due Out by March 31, 2011

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At its board meeting on February 23, 2011, the Financial Accounting Standards Board (FASB) stated that it plans to issue its final guidance on Troubled Debt Restructurings (TDRs) by March 31, 2011.

At the present time there are no clear guidelines to assist creditors in determining whether a loan or other debt modification meets the criteria to be considered a TDR, both for debt recording and TDR disclosure purposes.  In announcing the guidance initiative last year, FASB Acting Chairman Leslie Seidman stated that the guidance should “result in more consistent application of GAAP for debt restructurings.”

On the basis of public comments and Board deliberations to the guidance initiative, FASB recommended earlier this year that the final guidance will feature:

  • a specification that the absence of a market rate for a loan with risks similar to the restructured loan is an indicator of a troubled debt restructuring, but not a determinative factor
  • >assessment of whether a restructuring reaches the level of a TDR should consider all of the modified terms of the restructuring, including any additional collateral or guarantees
  • >insignificant delays in cash flows are a factor to consider when determining whether a concession has been granted
  • >for purposes of determining whether a borrower is experiencing financial difficulty, creditors should consider whether default is “probable in the foreseeable future.”

At the February 23rd Board meeting, the FASB discussed many facets of TDRs including a lengthy analysis of the concept of “insignificant delays in cash flows,” in the context of restructurings.  The Board also discussed the transition provisions and effective date for the new guidance.

With respect to the latter issue, the FASB affirmed that the final guidance on TDRs will be prepared by March 31 of this year.  The Board also stated that the interim guidance proposed in the October 13, 2010 Exposure Draft would be effective on a prospective basis for interim and annual periods ending after June 15, 2011, with retrospective application permitted.  

Hyperbaric Clinic Reopens Amidst Controversy

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Neubauer Hyperbaric Neurologic Center, a controversial clinic, reopened last week after spending nearly two years closed due to an accident involving two of its patients. The accident, which killed a young boy and his grandmother, involved a fire that caused the clinics closure. However, this was not the only trouble for the Fort Lauderdale based clinic.

In 2009, the FDA issued a Warning Letter alleging that the clinic was improperly marketing its hyperbaric chambers. According to the FDA, the clinic was marketing its devices for uses that were not approved by the Agency. Specifically, the FDA claimed that the clinic was promoting treatments for unapproved conditions, including stroke, cerebral palsy, multiple sclerosis, and coma. Although there are several conditions for which hyperbaric treatment is recognized, the FDA took issue with the company claiming to treat unlisted conditions and cited them for promoting “off-label” uses.

The question of whether the Neubauer Clinic may promote off-label uses of hyperbaric oxygen is a complicated one. An off-label use is one other than the approved intended uses that appear in the products labeling. While pharmaceutical companies and the manufacturers of medical devices may be targeted by the FDA for promoting their devices for off-label uses, the FDA ordinarily is not empowered to interfere with the methods that doctors use to treat patients. Rather, the practice of medicine allows doctors to pursue treatment plans that are adapted to the specific patient. Thus, where a doctor promotes various treatments that he or she performs using these devices, the doctor is promoting the practice of medicine and is not subject to FDA interference. While it is unclear whether the FDA will again target the Neubauer Clinic for its marketing materials, the clinic may be protected from FDA enforcement by restricting promotions to the services and procedures its doctors utilize.

For more information regarding medical devices or FDA regulatory compliance, please contact us at contact@fidjlaw.com.